BI urged to slash interest rates
BI urged to slash interest rates
JAKARTA (JP): An improvement in public confidence of the
rupiah in the past several days has created better momentum for
Bank Indonesia (the central bank) to ease its tight monetary
policy, businessmen and analysts have said.
Sofjan Wanandi, chairman of the Gemala Group, said yesterday
that improved public confidence made rate cuts much more
feasible.
"I think now is the right time for Bank Indonesia to cut its
rates," he told The Jakarta Post. "Unlike in the past, a cut in
interest rates is less risky."
The rupiah has been improving in the last few days on the
government's announcement last week that it would seek financial
aid from the International Monetary Fund (IMF).
A team led by IMF officials was in Jakarta to discuss the aid,
but Minister/State Secretary Moerdiono said yesterday that
government officials and the team had not talked about the amount
of aid needed.
The rupiah was steady against the dollar yesterday in slow
trading, closing at 3,470/3,500, compared to an opening of
3,450/3,500.
Sofjan said that keeping interest rates at current levels
would devastate the already weak business sector. He estimated
that many companies would collapse if the central bank maintained
its credit crunch policy.
He said that the government's tight monetary policy had
severely hit almost every business, not only due to expensive
loans but also because of a sharp decline in orders and sales.
"Contractors have lost at least 30 percent of their orders,
the automotive industry has been cutting shifts, food companies
have had the same experience suffering a 30 percent decline in
sales, while supermarkets and tourism have lost about 30 percent
of their revenue," he said.
He feared that if the government maintained its monetary
policy, the impact would not only cause economic difficulties,
but also social problems.
Bank Indonesia raised its benchmark interest rates to as high
as 30 percent on Aug. 19 as part of measures to shore up the
falling rupiah.
In late September, the central bank for the fourth time
lowered its interest rates on one to three-month SBI papers to a
range of 17 percent to 21 percent, from 18 percent to 23 percent.
But Sofjan said the interest rates were still too high. "If
the SBI rates are maintained at a level of between 17 percent and
21 percent, the deposit rates would stay high at 30 percent and
the lending rates would continue to hover between 30 percent and
40 percent."
No companies would be able to survive with such high rates, he
said.
Laksamana Sukardi of Reform Consulting Group shared the same
view saying the prolonged tight monetary policy could backfire on
the country's economy.
"It's the right momentum now to loosen the tight monetary
policy because the rupiah has already reached an appropriate
level," he said.
Laksamana said the monetary measures could cause an economic
recession.
Chief economist of Danareksa Sekuritas, Rino Agung Effendi,
acknowledged that high interest rates were crippling business
activities, but said that a move to cut rates could further spur
currency speculation.
"The loosening of the tight monetary policy should be
simultaneously introduced with the announcement of the IMF
financial package," he told the Post.
Rino argued that if the government ended the tight monetary
policy by lowering interest rates, the rupiah would again become
a target for speculators rushing for dollars. (aly/hen)